Senate Panel Blames Government, Lenders for Loose Sept. 11 Loans

WASHINGTON – Nearly three out of four loans made under a government program to help small businesses get back on their feet after the Sept. 11, 2001, attacks were made without adequate documentation, says a Senate report.

TheSmall Business and Entrepreneurship Committeesaid Wednesday that the Bush administration's primary terrorism relief loan program was so loosely managed that "conceivably every small business in the country became eligible to participate."

The findings substantiate an Associated Press investigation last year that found $3.7 billion government-backed Sept. 11 recovery loans went to small companies that weren't hurt by the attacks and didn't even know they were getting help designated for terror victims.

Instead, she said, the problems stemmed from the Small Business Administration and the private lenders who approved the loans. Bankers who could lend more money at less cost under the program had an incentive to push the loans, especially after SBA officials told lenders they wouldn't be second-guessed for making STAR loans, she said.

"The lack of clear guidelines allowed lenders to justify making a STAR loan to almost any borrower," the committee report said.

One of every 10 loans examined by Snowe's committee had no documentation, the report said.

Several lawmakers have charged that the White House used the terrorism loan program as a substitute for one of its main small business loan programs to save money. But Michael Stamler, an SBA spokesman, said officials didn't believe they "pushed lenders to abuse the program. ... However, we believe most of the report's findings are valid."

The guaranteed loan program was designed by Congress to help small businesses "adversely affected" by the Sept. 11 attacks on New York and Washington.

AP reported last year that recipients of the STAR loans ranged from more than 100 Dunkin' Donuts and Subway franchises to a motorcycle shop in Utah. Ultimately, barely 10 percent of all Sept. 11 direct and guaranteed recovery loans actually went to companies in the Washington and New York areas, AP found.

The Senate report Wednesday follows an investigation late last year by the SBA's own internal watchdog, which found that lenders frequently gave money to companies that weren't hurt by the attacks and didn't document why the loans were related to the Sept. 11 attacks.

Former SBA chief Hector Barreto, who resigned in April, had described the agency's oversight as "far from flawless" but insisted no loans were given to ineligible companies.